Middle Eastern OPEC countries are returning to a policy of discounts on their oil after a weak summer season that left producers and traders with millions of unclaimed barrels.
The example of Saudi Arabia, which lowered prices by $0.9-1.5 for Asia, $0.2-0.6 for Europe, and $0.5-0.7 for the United States, decided to follow all the key players from the Persian bay.
According to Bloomberg, Iraq, the second-largest OPEC member in terms of production (3.7 million barrels per day), announced a decrease in shipping prices for supplies in October.
The official price for Basrah Light for customers in Asia will drop $1.3 from September and $1.9 from August, with October shipments selling at a $0.3 premium over the regional Oman / Dubai benchmark.
For the United States, light Iraqi oil will fall in price by 45 cents, for buyers in Europe вЂ” by 30 cents. Last month, prices were already down 10 cents and $2, respectively.
The United Arab Emirates National Oil Company ADNOC last week announced a $1.35 per barrel price cut for its main grade, Murban. The UAE, the third-largest member of OPEC, provided the same discounts for the heavy Upper Zakum brand, writes Platts.
Kuwaiti oil fell in price across the entire line of grades, according to Reuters. Discounts on the KEC brand for October delivery will be $1.2 per barrel. KSLC will be cheaper by $1.4, Khafji вЂ” by $0.9.
Comparable discounts are offered by Qatar: the official price of oil grade Qatar Marine is reduced by $1.35, and Qatar Land вЂ” by $1.4.
It is normal for prices to go down. Not normal that they grew up, a source at the oil trading company told Forbes: demand for вЂњblack goldвЂќ during the summer season was lower than miners expected.
As a result, tankers are left with millions of unsold barrels, and oil traders are faced with a dilemma вЂ” either to extend storage by chartering ships and turning them into вЂњfloating canistersвЂќ, or to try to sell them, risking prices crashing in a fragile market.
Trafigura, the world's third-largest commodity trader with $170 billion in annual turnover, has leased at least five VLCC-class supertankers, each capable of carrying up to 2 million barrels, according to Reuters. In them, the company will have to keep diesel and gas oil, which could not be sold during the weak summer season.
Other top traders, including Vitol, Litasco, and Glencore, also lease large tankers to store diesel they cannot sell yet. вЂњThe market has gone weak and bearish and floating vaults are making a comeback,вЂќ a source at one of the oil trading companies told Reuters.
The fact that there is a surplus in the physical market is evidenced by the structure of futures: contracts for the next month are trading much cheaper than oil with a delay in delivery, and the difference вЂ” contango вЂ” is increasing. At the end of August, the 6-month spread for Brent futures was $1.9, and on Thursday it was $2.71.
The global problem is the lack of sales markets, which explains the oil trader Forbes. According to him, until the fall, players stored oil and hedged in the hope of an increase in demand, but it did not materialize. вЂњTo renew (hold) you need contango (when the prices of long-term futures are higher than prices of short-term futures), and to sell you need a price. There is neither one nor the other, uncertainty pushes the price down, plus the clouds are gathering around the second wave of the pandemic, вЂќ states a market participant.